Sunday, July 22, 2007

Ownership Matters: Murdoch, Dow Jones and the Importance of Family

The Bancroft family meets Monday, July 23, to finally decide if they will sell Dow Jones & Co. to News Corp., the company that is Rupert Murdoch's global media behemoth. This may be the last of four separate deals involving seven companies with journalistic reputations that were established over decades.

Dow Jones owns the Wall Street Journal, respected for prize-winning news coverage viewed as independent of the newspaper's ardently conservative editorial page, and of the Bancroft family interests. News Corp. owns companies like the New York Post and Fox News, viewed as spiking journalism with sensation and conservative politics that reflect Mr. Murdoch's views. Much coverage of the pending sale has therefore focused on whether News Corp. will remake the journalism at Dow Jones to conform with Mr. Murdoch's desires.

As of this post, it seems likely the sale will go through. Directors at Dow Jones voted for the deal last week. The Bancrofts control almost two-thirds of the shareholder votes needed for final approval. The International Herald Tribune reports the family's stock generates about $20.6 million in dividends each year that must be divided among more than 30 people. The newspaper reports a sale could give the family enough cash to generate $52 million a year if the cash were invested conservatively.

The family is divided about the sale, but even members who regard Mr. Murdoch as a threat to good journalism have searched for alternate buyers or investors . Newspapers in markets with high-speed wireless and Internet connections are taking stiff financial blows as advertisers move online. Mr. Murdoch is offering a premium for Dow Jones stock, making a vote to reject his offer a vote against the best financial interests of other company stockholders. Journalistic principles, alas, cannot generate enough immediate revenue to overcome this financial imperative.

Family Influences

If the deal goes through, the sale of Dow Jones to News Corp. will join the sale of Knight Ridder to The McClatchy Co., the sale of The Tribune Co. to real-estate investor Sam Zell , and the sale of Reuters to The Thomson Corp. on a list of acquisitions involving companies deeply involved in the production of news. In each case, at least one of the companies is also known for its founding family, or families.

Family ownership has cachet in the newspaper business. The New York Times Co. and the Washington Post Co. are controlled by families that place a high value on journalistic excellence, sometimes at the expense of their short-term economic interests. There is also systematic evidence that control by families or executives at public companies increases the financial commitment to those companies' newspapers.1

However, the four deals show family influence varies. A significant number of Bancrofts want to sell Dow Jones. Mr. Murdoch's father was a journalist.

The Chandler family, best known for owning the Los Angeles Times, had a significant minority stake after their company merged with the Tribune Co. The Chandlers pushed hard to sell the Tribune Co. when Mr. Zell offered a deal that would maximize their financial returns and minimize the taxes they owed.

Knight Ridder was known for distinguished journalism, and its last CEO was a member of one of the founding families. However, Anthony Ridder was unable to fend off stockholder pressure to sell the company's 32 newspapers. McClatchy is also controlled by a family that values journalism, but it did not keep 12 Knight Ridder papers, including some with national reputations, because they weren't in growing markets.

Roy Thomson said money, not news, drove his ambitions, and he built Thomson into a multinational company. The company owned dozens of dailies in the United States, but their news coverage was considered mediocre. Thomson sold its U.S. newspapers around 2000 as it reinvented itself as a provider of specialized information. Reuters, which began as a news service in 1851, is heavily invested in financial services. The acquisition by Thomson will merge established news companies that refocused their operations to take full advantage of new media technologies.

These four cases show the relationship between good journalism and family ownership varies, particularly at companies facing enormous economic pressure. There are other variables that probably play an important role in determining the outcome of such deals. Those variables will be examined in my next post.

1 Lacy, S., Shaver, M.A., & St. Cyr, C. (1996). The Effects of Public Ownership and Newspaper Competition on the Financial Performance of Newspaper Corporations: A Replication and Extension. Journalism & Mass Communication Quarterly 73,(2): 332-41.